FDA User Fees Slated for Increase in Fiscal Year 2018

October 2nd, 2017

Center for Tobacco Products Plans on Increasing Assessment to Reach $712m by FY2019

October 1, 2017, marked the first day of the U.S. Food and Drug Administration’s 2018 fiscal year, and it was no surprise to learn that user fees for the U.S. tobacco industry have increased $37 million over last year’s assessment. User fees are excise taxes collected by the Center of Tobacco Products (CTP), a division of the FDA, and it’s not over yet. The CTP is planning on increasing the assessment annually until it attains its $712 million budget for FY2019.

To meet CTP’s FY2018 requirement, the tobacco industry as a whole will pay $168 million per quarter. The portion of that total allotted to the cigar industry would be $16.6 million/quarter for a total $66.4 million, or approximately $5 million more in FY2018. Drilling down even further, user fees will increase from an estimated 4.31 cents/cigar to 4.74 cents/cigar.

FDA user fees go pay for all regulation of tobacco products in six categories: cigarettes, cigars, pipe tobacco, chewing tobacco, snuff, and roll-your-own (RYO). Starting with FY2017, the fees have been paid in accordance with the FDA’s Final Deeming Rule whereby tobacco companies are required to submit federal excise tax information to the FDA on a monthly basis. Based on that data, the FDA calculates the user fees for each category and those excise taxes are used to fund the CTP. Like many government fees, these additional costs are often passed-on to the consumer. With regard to the cigar industry, although some companies do absorb the additional costs, it can also result in higher cigar prices at the cash register.

When all is said and done, the cigar industry will pay an estimated $563.7 million in excise taxes to the CTP for FY2018. This is based on a rate of 52.75% of the wholesale price which, including the SCHIP tax, is capped at 40.26 cents/cigar. Moreover, even though SCHIP funding was not extended by Congress it has not been removed from the overall increase. The $563.7 million figure is also based on a big decline in cigarette sales, which normally pay the majority of the excise fees.

As reported last month, if the U.S. House of Representatives passes S.294, premium hand-rolled and large cigars would be exempted. However, should little cigars and cigarillos not be exempted, the cigar category would still be required to pay the quarterly $16.6 million.